Transcription

Mira Mehta, CEONike Lawrence, COOJared Westheim, CTOShane Kiernan, [email protected]

Table of Contents1. Executive Summary . 11.1.1.2.1.3.1.4.1.5.1.6.1.7.1.8.1.9.The Problem . 1The Opportunity . 1Mission . 1Value proposition . 1Theory of change . 2Solution . 2Social Return on Investment . 2Financials . 3Management Team. 32. Introduction . 43. Operational Summary . 53.1.3.2.3.3.3.4.3.5.Organizational Structure . 5Value Proposition. 5Business Model . 5Profit formula (Unit Economics) . 10Measuring results . 104. Market Analysis . 124.1.4.2.4.3.Industry analysis. 12Our competitive edge. 14Risk Analysis . 155. Strategy for Growth . 176. Management Summary . 186.1.6.2.6.3.Management team . 18Advisors . 19Personnel Plan . 207. Financial Plan . 207.1.7.2.7.3.7.4.7.5.7.6.Revenues . 20Expenses . 21Net surplus . 21Quarterly statement of income . 22Annual cash flow statement . 22Capital Requirements . 228. Appendices . 238.1. Farmer contract . 238.2. Indicative workplan . 248.3. Map of Nigeria . 248.4. Financials projections and assumptions . 1Sources . 12

1.Executive Summary1.1.The ProblemNigeria   is   simultaneously   the   world’s   13th   largest   tomato   producer   and   the   world’slargest importer of tomato paste. Although approximately 200,000 Nigerian farmers growover 1.5 million metric tonnes of tomatoes every year, half of their harvest is lost beforereaching the market, and the remaining 50% is subject to significant downward pressureon price due to common gluts in the markets and the perishable nature of the crop.Farmers,   who   are   among   Nigeria’s   most   financially   vulnerable   population,   bear   theburden of both these post-harvest losses and this price uncertainty. Smallholder tomatofarmers lack access to a consistent, large market for their produce, rendering themunable to consistently make a profit and dis-incentivized to increase their yields orchange their farming practices. As a result, domestic supply cannot meet local demandfor fresh tomatoes, which exceeds 2 million metric tonnes or 2.5 billion annually. Thecountry supplements local demand for fresh tomatoes with 360 million (over 300,000metric tonnes) of imported tomato paste annually.Nigeria is the most populous country in Africa and the seventh most populous in theworld – its population is expected to grow from 170 million today to over 440 million by2050.  This  has  grave  implications  for  the  country’s  food  security  situation,  given that it isheavily dependent on food imports. If global food prices were to spike and drive up theprice of imports, as they did in 2007-2008, Nigeria would struggle to feed its population.1.2.The OpportunityA well-located, commercial tomato processing operation focused on continuousproduction rather than absorbing seasonal harvest gluts can increase incomes over fivetimes   for   participating   smallholder   farmers,   who   comprise   75%   of   Nigeria’s   workforce.The Nigerian Federal Ministry of Agriculture and Rural Development has made acommitment to improve farm-to-processor links in the tomato value chain, but nobusiness has yet developed a viable, sustainable model to competitively aggregate,process, package and sell tomato paste domestically. Our model links farmers directly topaste production, simultaneously reducing poverty for small holder farmers, who areamong  the  country’s  most  vulnerable  population,  and  decreasing  Nigeria’s  dependenceon an imported food product that is a dietary staple in Nigerian cuisine1.3.MissionTomato Jos is an agricultural production company that believes in the power of farmingand processing local food products for local consumption. Our mission is to make tomatoproduction a sustainable, profitable business forNigerian farmers.1.4.Value propositionValue to farmers: we give farmers the tools andthe incentive to sell a greater proportion of anincreased tomato yield at a consistent, fair price.Value to consumers: we provide consumerswith access to domestic tomato paste that1

matches the quality of imported products at a lower cost.1.5.Theory of changeIf we can connect Nigerian farmers to domestic consumers of processed tomatoproducts, we will improve the lives and incomes of smallholder farmers, provide morenon-farming job opportunities for the increasingly urban population, and increase thestability and sustainability of the food supply in Nigeria.1.6.SolutionSubstantially improving the livelihood of smallholder tomato farmers requires movingmultiple metrics simultaneously. Farmers must be able to sell more of their product, byincreasing yields and reducing post-harvest losses; they must be able to capture agreater amount of the value of their harvest; and they must be less vulnerable toseasonal price fluctuations. To make   this   possible,   Tomato   Jos   embeds   farmers’production within a supportive, self-contained agribusiness ecosystem focused on localproduction, processing, distribution, and farming practice improvement.At scale, Tomato Jos will operate three business lines: (1) Farm and agricultural centerwith farmer education and bundled inputs to help smallholder farmers grow and harvestcrops  more  efficiently;;  (2)  Logistics  and  supply  chain  support  to  navigate  the  “last  mile”to smallholder farms and safely bring produce to the processing facility; and (3) Foodprocessing and packaging facility that prepares finished goods for distribution in Nigeria.As the business attains profitability, Tomato Jos will consider options to reinvest aportion of profits into expanded agricultural support programs for farmers in thesurrounding community. Through investment in the community, we hope to further alignfarmer outcomes with the success of our venture and improve the lives of smallholderfarmers and the competitive landscape for local agriculture, translating into future returnsfor the business.1.7.Social Return on InvestmentTomato  Jos  will  have  a  large  positive  impact  on  Nigeria’s  agribusiness  sector,  the  socialfabric, and overall economy by ultimately achieving the following: Increase revenues from tomato sales five times for participating smallholder farmersby year five. Create a demonstration farm that actively spreads agricultural best practices to thesurrounding community. Provide a consistent market for approximately 1,000 farmers within our network byyear five.2

Link farmers to markets and strengthen value chains through logistics systems thatare  able  to  navigate  the  “last  mile”  to  smallholder  farms.Improve access to the appropriate quantities of fair-priced inputs such as fertilizersand high-yielding seeds through bundling and pooled procurement.Reduce financial risk from volatile crop prices by offering forward purchasingagreements.1.8.FinancialsTomato Jos follows a low margin, high volume base of the pyramid model where profit isdriven by both scale and technological innovation to control costs. We project thatTomato Jos will become profitable within three years of launch following investmentfocused on expanding the farmer network, our nucleus farm and expanding tomatopaste processing capacity. Over this period we anticipate that Tomato Jos will undergotwo key capital raises: a 500,000 in seed equity in the first quarter of year two to fundour Nigerian nucleus farm expansion, launch the Dami system and begin processingtomato paste. Following the successful scale-up a 3,000,000 growth equity subscriptionin quarter one of year four is required to fund expansion of the business model. OnceTomato Jos reaches scale we believe that profit margins will approach 15%.1.9.Management TeamOur four founding members have over 10 years of combined work experience in Africa,with professional and educational backgrounds that span agribusiness, logistics andsupply chain management, consulting, finance, marketing and business development,investment management and nonprofits.Mira Mehta, CEO: Two  years’  investment  management  experience,  four  years  at  ClintonHealth Access Initiative (CHAI) solving HIV-related operational and supply chainproblems in Nigeria.Nike Lawrence, COO: Five   years’   investment   banking   research,   one   year   at   AcumenFund building agriculture and healthcare pipelines and portfolios in Liberia, Sierra Leone,and Ghana.Shane Kiernan, CFO: Three  years’  investment  banking  /  management  experience,  twoyears at CHAI assisting national governments to secure financial resources for nationalhealth systems.Jared Westheim, CTO: Three   years’   healthcare   consulting   experience,   three   years   atCHAI and Technoserve implementing international development and agribusinessprojects in Africa.3

2.Introduction“Tomatoes  are  my  livelihood,  it's  what  I  know,"  says  Azumi  Kutumbi,  looking  across  hishectare   of   tomatoes,   "but   it's   a   very   tough   business.”   Kutumbi   has   been   farmingtomatoes in the verdant rolling hills near Jos in Nigeria for 15 years. The proceeds fromthe back-breaking work have allowed him to support his family and put his fourdaughters through school. But hard toil is not always rewarded with hard profit."Nothing is certain", he says."We've had some very badseasons, and with tomatoes, thereare difficulties all along theprocess."In Nigeria many farmers complainof having to borrow at 100%interest rates from local lenders tobuy seeds and fertiliser. And oncethetomatoeshavebeenharvested, local producers havelimited access to consumers incities such as Lagos and Abuja.Furthermore, with labour and rawinputs scarce, mechanisation oftenlimited and weather patterns increasingly unpredictable, small-scale farmers likeKutumbi can struggle just to break even.Tomato Jos wants to change the lives of smallholder farmers like Kutumbi by improvingaccess to education around best practices, increasing access to high-quality inputs, andenabling access to end consumers. Farmers selected to work with Tomato Jos receiveseeds, fertiliser and other resources on interest-free credit. They are trained byagronomy managers who help monitor the progress of their tomato field and Tomato Josbuys their produce at market price, thereby securing tomatoes for its processing plant.Farmers like Kutumbi previously yielded 7 metrics tonnes of Tomatoes per hectare thatcould sell for around 1000 at the local market. Now farmers utilizing the Tomato Josmodel can increase their yield to 26 metric tonnes per hectare reaping more than 5000from selling to Tomato Jos for tomato paste processing.“This  is  still  a  new  thing,"  says  Kutumbi  cautiously,  "I  hope  it  will  work  because  if  it  does,it will help me, my family, and our community. Things could be much better than before,"he continues, "and maybe if my children see farming can be profitable, they will evenwant to stay and be farmers too!"4

3.Operational Summary3.1.Organizational StructureTomato Jos plans to operate as a for-profit entity.3.2.Value PropositionOperating a vertically integrated tomato processing business enables end-to-end controland allows Tomato Jos to add value both to farmers on the upstream side and endcustomers downstream.Value to farmers: we give farmers the tools and the incentive to sell a greaterproportion of an increased tomato yield at a consistent, fair price.Value to consumers: we provide consumers with access to domestic tomato paste thatmatches the quality of imported products at a lower cost.3.3.Business ModelHow Tomato Jos Generates RevenueAt scale, Tomato Jos will generate revenue by manufacturing tomato paste, brandingand packaging it, and selling it directly to two major supermarket chains, Shoprite andSpar, and indirectly to open-air markets through regional distributors. Approximately55% of the tomatoes used for paste production will originate from farmland directlyoperated  by  Tomato  Jos  (“the  nucleus  farm”  or  “the  nucleus  estate”),  while  the  remaining45%   will   be   purchased   from   smallholder  farmers   (“the   network”)   operating   within a 20mile  radius  of  our  production  facility  (“the  factory”).The profitability of our company depends on our ability to run the factory at minimumcapacity over the course of the tomato harvesting season - because tomatoes are fragileand spoil within 1-2 days of harvesting, a constant supply of tomatoes must be deliveredto the factory every day. We believe that the best way to generate this constant supply ofhigh-quality  tomatoes  while  remaining  asset  light  is  through  a  “nucleus  estate”  contractfarming model. The nucleus estate contract farming model is common for tomatoprocessing facilities in the US and China, the two leading countries for tomato pasteproduction, and the characteristics of this model are defined by the Food and AgricultureOrganization of the United Nations (FAO) as follows: Involves a centralized processor and/or packer buying from a large number ofsmall farmers Vertically coordinated with quota allocation and tight quality control The sponsor also manages a central estate or plantation The central estate is usually used to guarantee throughput for the processingplant and is sometimes used for research as well Involves a significant provision of material and management inputs5

The Nucleus FarmIn its first year of operation, Tomato Jos will establish a 3 hectare nucleus farm in orderto prove that tomato yields in Nigeria can be improved from 7 MT/Ha to 30 MT/Ha overthe course of one year, solely by using high quality seeds and fertilizer, and by makingbasic improvements in farming techniques. In order to comply with governmentregulations, which have barred the use of genetically modified (GM) seeds, Tomato Joswill source only hybrid seeds, which are created through farm-based cross-pollination oftwo different plants rather than the lab-based   genetic   modification.of   a   single   plant’sDNA.At   scale,   Tomato   Jos   plans   to   operate   a   nucleus   estate   with   a   10   hectare   “bestpractices”   greenhouse   and   a   500   hectare   open-air farm that yield 150 MT/Ha and 75MT/Ha, respectively. These facilities will be used to guarantee a minimum throughput forthe factory, train farmers in the network on farming best practices, and conduct ongoingresearch on tomato harvesting.The NetworkIn year two, Tomato Jos will recruit its firstcohort of farmers into the network, whichwill comprise 60 hectares. By year five, thecompany will work with a network offarmers operating on 1,000 hectares.Although formal market surveys have notbeen conducted, primary informationgathered from farms, villages, markets anddistributors   during   the   team’s   visit   toNigeria in March 2014 suggests that ourprincipal customers are smallholderfarmers who grow for the market. Theaverage smallholder tomato farm size inNigeria ranges from 1-2 hectares. A fewlarge-scale farmers plant from 10 to 200hectares of tomatoes, leaving the overallaverage tomato field size at 1.5 hectares.For our first farmer cohort, we will rely upon our existing local partners on the ground, acooperative of mid-sized vegetable farmers, to refer us to smallholder farmers whom wecan interview and vet in the first year as we set up the nucleus farm. As we scale, weexpect though that our greatest product champions and advocates will be the farmers inour network. A successful Tomato Jos network farmer who has been using Tomato Josinputs and best practice methods will be able to demonstrate within his own socialnetwork the financial and labor benefit associated with our model. For our mostsuccessful and enthusiastic farmers we will have them hold field days at which allfarmers in the village and the community can be invited. At these field days theappropriate Tomato Jos agronomy manager will be invited to speak at the field days andexplain how our partnership works.6

Following up on these leads is the role of our agronomy managers who are vital to thecontinued expansion of our network farmer model. It is the agronomy managers who areresponsible for applying the Tomato Jos evaluation criteria to prospective farmers todetermine their suitability to work with Tomato Jos. Other engagement mediums(advertising, radio, billboards, print, social, local sponsorship, etc) will be evaluated on acase-by-case basis to determine the suitability of each mode of communication.The Dami System for Continuous ImprovementTomato Jos will offer a complete   bundle   of   services   called   a   “Dami”   (which   means“bundle”  in  Hausa,  one  of  the  main  languages  spoken  in  Nigeria)  to  help  all  farmers  inthe network achieve a yield of 30 MT/Ha. In general, all of the farming inputs and capitalequipment that Tomato Jos sells to farmers in the network will be sold without making aprofit; that is, we will sell these items to farmers at our own purchase price. The Damiconsists of four main components:1. Improved Inputs: Sell high quality seeds, fertilizer and pesticides at our purchaseprice, in bundled packages so that farmers can easily determine how much of eachitem to use.2. Training Support: Educate farmers on tomato-farming best practices through NGOdeveloped curricula and hands-on training at the nucleus farm.3. Forward Contract Financing: Specify a price in advance of the growing season fordelivery  of  a  specified  quantity  of  tomatoes,  reducing  farmers’  exposure  to  seasonalprice fluctuations and guaranteeing a market for increased yields.4. Guaranteed Market and Transport for Produce: Establish a processor on-site thatwill absorb all surplus production at a reliable price and manage transport from farmto factory.Once farmers in the network are able to achieve a yield of at least 30 MT/Ha consistentlyover   three   harvesting   cycles,   they   will   be   classified   as   “bronze   level”   farmers. TomatoJos will support its bronze farmers to make further gains in yield by selling them highquality drip irrigation systems at our own purchase price.In the US, where open-air farming is the main technique used to grow paste tomatoes,drip irrigation systems have been known to increase yields by a factor of 50%. As such,farmers in the network who are able to achieve a yield of at least 45 MT/Ha consistentlyover   three   harvesting  cycles   will   be   classified   as   “silver   level”   farmers.  Tomato  Jos  willsupport its silver farmers to make further gains in yield by selling them the materialsneeded to build a greenhouse at our own purchase price.Farmers in the network who are able to achieve a yield of at least 80 MT/Ha consistentlyover   three   harvesting   cycles   will   be   classified   as   “gold   level”   farmers.   As   the   mostadvanced and motivated farmers within the network, and also (by default) as the farmerswith the longest relationship with our company, the gold farmers will be eligible toparticipate in the Tomato Jos paste franchise program. This program enables the goldfarmers to procure low-volume paste production equipment and produce tomato pastefor resale to Tomato Jos, which will package, brand and sell this paste alongside thepaste produced in the factory.7

In this way, over a period of three to five years, Tomato Jos will transform the mostdedicated and motivated farmers into entrepreneurs who create non-farm jobs in theircommunities and are able to capture a larger portion of the tomato value chain by sellingpaste rather than tomatoes.Transporting Tomatoes from the Network to the FactoryTo transport the tomatoes from our network farmers and the nucleus farm to theprocessing facility we will use a fleet of leased trucks. A typical tomato truck holds 22M/T of tomatoes, which is about 300,000 tomatoes. We anticipate a need for one truck inyear one and scaling to 20 trucks by year 5. An additional benefit to leasing the vehiclesis the benefit of a maintenance program and the not requiring the capital expenditureand depreciation associated with owning the vehicles.Running the Tomato Paste Processing FacilityThe tomato paste processing facility enables Tomato Jos to transform highly perishable,raw tomatoes into long-lasting, higher-value tomato paste, and as such it will always playa large role in the ongoing operations of the company. During the paste productionseason, which is expected to reach 6 months by year five, the factory will run continuousproduction to minimize tomato wastage and maximize power efficiency. The biggest costassociated  with  running  the  factory  is  power,  for  two  main  reasons.  First,  the  “hot  break”equipment used in the critical evaporation stage of processing requires constant nearboiling   temperatures.   Second,   Nigeria’s   unreliable   national   power   grid   will   requireTomato Jos to run the plant with diesel rather than electricity up to 75% of the time.Tomato Jos has opted to invest in medium-capacity infrastructure for the factory forthree major reasons. First, the overall capital outlay is much smaller for medium-capacityequipment than for full-scale equipment; second, the modular approach allows us toscale manufacturing capacity in sync with the growth of the nucleus farm and network;and third, in order for Tomato Jos to work closely with golden farmers to set up satelliteprocessing facilities, our company needs to have a clear understanding of equipmentthat the golden farmers will use. Staffing requirements will vary based on whether or notthe factory is producing paste. Year-round staff requirements include a plant manager,engineers to maintain and service the equipment, and a skeleton crew of 5 to 8additional workers. During paste production season, the employee requirementincreases significantly for both skilled and unskilled labor, from 8 and 10 to 18 and 75,respectively.8

Marketing Paste in Domestic ChannelsLastly, Tomato Jos will secure an end market for our local brand of tomato paste. Ourapproach will be two-pronged: first we will ensure the offtake of our packaged output tolarge retail centers, and second our traditional marketing efforts will drive consumerpurchases of our unique product.1.Get Tomato Jos products on shelves. Initially, we plan to sell Tomato Josproducts to both large supermarket chains and traditional open air markets. The twolargest   supermarket   chains   in   Nigeria   are   Shoprite   and   SPAR,   which   is   the   world’slargest food retailer. Both Shoprite and SPAR are large enough that they contract andpurchase local food products directly from local manufactures without going through adistributor. Tomato Jos will use its fleet of trucks to deliver products directly to thesupermarkets, thereby preserving margin for us and the supermarkets.While we expect that our initial placement with these supermarkets will be on a trialbasis, once we demonstrate consumer demand, we intend to secure long-term, yearround delivery contracts with each of these chains for each of their 16 locationsthroughout the country (as of 2013).Despite any success that we have with Shoprite and SPAR, we plan to diversify ourdistribution channels to traditional open air markets because only 5% of food in Nigeriais   retailed   through   supermarkets.   Tomato   Jos’   fleet   will   transport   our   product   tocentralized, large open air market distributors based in Abuja and Lagos. From there,these distributors will ensure that our product makes it to the largest open air markets inthe largest cities in the country. While the price for fresh vegetables fluctuate in the openair markets, the price for our product and other packaged goods in the market remainfixed. The largest driver of costs to be successful in placing our product on retail shelveswill be the transportation costs, namely the diesel, required to truck our product to thevarious supermarket chain outlets.Our current product (70g sachets of tomato paste) is the most commonly purchased sizeof tomato paste   in   Nigeria’s   retail   market.   However,   over   time,   we   plan   to   extend   ourdistribution model into the food services industry, supplying larger drums of tomato pasteto the food services market (i.e. restaurants and hotels).2.Drive consumer purchases. We will drive consumer purchase by promoting abrand that is high quality and uniquely Nigerian. Our branding strategy will be to targetthe lower-, middle-, and upper-income market segments as they all purchase and usetomato paste for everyday meals.Tomato Jos will rely on very frequent tradi

Tomato Jos is an agricultural production company that believes in the power of farming and processing local food products for local consumption. Our mission is to make tomato production a sustainable, profitable business for Nigerian farmers. 1.4. Value proposition Value to farmers: we give farmers the tools and